In trading, unexpected events are common, including consecutive losses. This can happen when traders lose control of their impulses during abrupt market movements caused by spikes in volatility. What traders can do is manage risks and adjust their trading strategies according to market changes. Not adapting to market changes may result in consecutive losses.
Here are a few things that can cause them:
- Trading against the prevailing trend. Traders may unreasonably believe that a trend will finish soon, seeking to identify its peaks and lows. With the first failures, fear of missing an opportunity, known as FOMO, may overwhelm and trading against the trend may intensify.
- Re-entering the market after a stop-loss is triggered. When a stop-loss is triggered, the loss should be accepted, as this is what was intended according to the trading strategy. However, some traders may perceive this as a false break and they re-enter immediately. It’s advisable to wait for a while and see what’s happening before establishing new positions.
- Trading multiple positively correlated pairs simultaneously. In Forex, some pairs tend to move in similar directions — this is called positive correlation. Examples include EUR/USD and GBP/USD pair, AUD/USD and NZD/USD, EUR/JPY and GBP/JPY pair (USD/JPY also often shares directional tendencies with these yen pairs). If one trade hits a stop-loss, the other pair may experience the same thing, increasing the likelihood of consecutive losses.
Dealing with consecutive losses in trading requires emotional control, risk management, and strategic adjustments. Here are some steps to help you protect yourself from undesired outcomes:
- Take a break. After consecutive losses, step away from trading to clear your mind and avoid impulsive decisions. This is necessary to keep your emotions from getting stressed. Only return to the market when your emotions are under control.
- Review and adjust your strategy. Identify the mistakes that led to losses. When you successfully accomplish this, revise your strategy.
- Review and adjust your risk management. It is crucial to evaluate your position size, stop-loss, and take-profit levels. You may also consider reducing position sizes for pairs with higher volatility.
- Rebuild your confidence. After a significant loss, some traders are afraid of the market. To overcome this, resume trading with a smaller position size and gradually increase it according to your risk appetite under normal market conditions.
- Stay disciplined. Stick to your trading plan and avoid making impulsive decisions. Also, learn from your mistakes and try not to repeat them.
These are some of the causes and actions you can take if you encounter such a situation. Furthermore, there are several things you should refrain from to prevent consecutive losses:
- Do not engage in revenge trading: avoid trying to recover your losses through impulsive trades.
- Avoid overtrading, as this can lead to additional losses and more stress.
- Stay informed and up to date with market news and data releases.
Consecutive losses are a typical aspect of trading. However, adhering to these steps and pursuing a disciplined approach can enhance your trading performance.
